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Takeaways from the Tribe’s Oral Argument at the Federal Circuit: St. Regis Mohawk Tribe v. Mylan

Zachary Silbersher

On June 4, 2018, the Federal Circuit heard oral argument in Allergan’s ($AGN) effort to assert tribal immunity at the PTAB to shut down six IPRs against its Restasis® patents.  The St. Regis Mohawk Tribe has appealed the PTAB’s prior decision that it cannot assert its immunity as a basis to terminate the IPRs.  While there was no clear indication for how the three-judge panel at the Federal Circuit would rule, there were some interesting exchanges revealing how the Court views these types of transactions, and how viable they may be in the future.

A significant part of the hour-long argument focused on whether tribal immunity should be available in IPR proceedings given that they are essentially a “hybrid” proceedings, somewhere between an adjudicatory proceeding and a purely examination proceeding.  The Honorable Kimberly A. Moore in particular questioned counsel for all parties on this issue.  On the one hand, an IPR must be commenced by a private party, and the PTAB is limited to assessing the grounds for invalidity argued by the Petitioner.  On the other hand, the Director of the Patent Office has unreviewable discretion, for which it is politically accountable, not to review any particular IPR, and the relief that can be granted is limited to a decision on the patentability of the patent, rather than any relief unique to a particular party. 

The implication of this discussion was that, if IPRs are more like a private adjudicatory dispute between parties, then immunity should likely apply.  Yet, if it is more of an examination proceeding, where the Patent Office is truly taking a “second look” at a prior patent grant, then immunity should not likely apply.  The Court observed that the Supreme Court’s recent Oil States decision had likely hurt the Tribe’s position, given that the Supreme Court had indicated that a patent is public franchise.  As such, the government’s decision to revoke a previously-granted public franchise is not likely subject to an assertion of immunity. 

The government attorney illustrated this point rather effectively.  He proposed an interesting hypothetical.  He supposed that the Tribe had theoretically applied for the Restasis® patents.  On the eve before the Patent Office was to grant those patents, Mylan ($MYL) showed up with convincing prior art showing that the pending patents were not, in fact, patentable.  In that scenario, he suggested, no one would argue that the Tribe could assert its immunity to enjoin the United States government to issue the patents.  In Oil States, the Supreme Court suggested that an IPR is essentially the same exercise as examination, just after the patent has issued.  Thus, the government concluded it is illogical for immunity to apply within an IPR, given that it could never apply before a patent is granted.  The government underscored the point that, in its view, the government’s decision to grant or revoke a patent is not something against which immunity should apply, but it is rather firmly within the province of the government’s own discretion. 

Interestingly, the government respectfully implored the Federal Circuit to categorically decide that immunity, at least tribal immunity, is unavailable within an IPR proceeding.  Otherwise, this issue will continue to arise in multiple different contexts and scenarios.  This could be one of the most significant points from the hearing to the extent this appeal reads through to future attempts to “rent” any sort of immunity as a defense to an IPR. 

Courts, in general, are typically reluctant to make big, sweeping policy decisions when a specific case can be decided on more limited grounds.  This appeal is a case in point.  The PTAB rejected the Tribe’s motion to terminate the IPRs on the grounds that immunity was not available, but also because the Tribe did not retain enough substantial rights in the patents.  That latter point was limited to the facts of this case, and the precise terms of the transaction between Allergan and the Tribe.  The Federal Circuit could easily avoid any big decision on the application of immunity in IPRs by resolving this appeal solely on the terms of the transaction between Allergan and the Tribe, thereby avoiding having to decide the bigger policy questions regarding immunity.  That would likely stifle any review by the Supreme Court, and it would thus kick the can down the road.  The PTAB’s decision on immunity would thus stand, and a relative cloud of uncertainty would remain over to what extent immunity can be “rented” as a defense to IPRs, or perhaps other civil proceedings. 

If the Court’s questions during the oral argument are any indication, however, then the Court is prepared to render a decision on the applicability of tribal immunity in the context of IPRs.  The Court did not entertain any discussion of the “substantial rights” issue specific to the transaction between Allergan and the Tribe.  Assuming that the Court does address the applicability of tribal immunity in the context of IPRs, then there is a strong likelihood that this appeal will be taken up by the Supreme Court.      

The Court also repeatedly asked all counsel whether it viewed Allergan’s transaction with the Tribe as essentially an inappropriate circumvention of the IPR process.  The Tribe’s answer noted that whether or not the transaction was an attempt to circumvent the IPR, that is technically irrelevant to the legal question of whether the immunity should apply in this instance.  Even if that is technically correct, one clear take-away was that the panel was concerned with the same concerns articulated by the Honorable William C. Bryson in the parallel district court case in Texas, where he admonished Allergan for being “conspicuously silent about the broader consequences of the course it has chosen.”  (Allergan v. Teva, Dkt. 522 at 4-5).  For those wondering whether the Federal Circuit would be concerned that Allergan’s transaction just didn’t smell right, it appears that the Court decidedly has a concern that this was a sham. 

Two other interesting take-aways from the oral argument.  First, the Tribe’s counsel acknowledged that tribal immunity would not apply in the context of ex parte reexamination.  That admission devolved from the Tribe’s principle argument that immunity applies in the context of IPRs because they are, essentially, a private adjudicatory proceeding.  Indeed, the Tribe seemed to suggest that if the PTAB decides that immunity applies in the case of an IPR, rather than dismissing the IPR outright, the PTAB should convert the proceeding to one for ex parte reexamination. 

While this suggestion may have little impact on the outcome of this appeal, it may have farther reaching consequences for pharmaceutical or other companies contemplating transactions like that between Allergan and the Tribe.  If “renting” tribal immunity is not sufficient to terminate an IPR altogether, but only convert it to a different invalidity proceeding, that may helpful, but not sufficient to warrant the headaches of transferring your patents to another entity.  Especially if there is still the likelihood that the patents could be invalidated by the Patent Office.  Indeed, this wrinkle alone may quell further interest in these types of transactions regardless of how the courts come out on the applicability of immunity to IPRs.

A second interesting takeaway has to do with State sovereign immunity.  It bears remembering that Allergan’s press release announcing its transaction with the Tribe touted its confidence in the strategy given that the PTAB had already blessed the applicability of State sovereign immunity in IPRs.  While much of the briefing in this case has excavated the distinctions between State and tribal sovereign immunity, the questioning during oral argument did not appear to recognize that distinction as pertinent.  Rather, the discussion suggested that immunity is either available or not within IPRs.  The government’s argument, for instance, would be applicable to either form of immunity. 

Therefore, while the Federal Circuit will likely render a decision that is limited to tribal sovereign immunity, it is very possible that its reasoning will be equally applicable to State sovereign immunity.  In that case, the PTAB’s prior decisions holding that State sovereign immunity can be asserted within an IPR may also be in jeopardy.